Petrobras Jams Brazil IPO Pipe

As local and international investors hoard cash for a $30bn Petrobras follow-on, the chance of new Brazil equity supply is slim short-term, say ECM bankers. The state-controlled oil producer is expected to issue in September, and the market is looking to the deal to provide a price benchmark. “There should be no more IPOs this summer – everyone is waiting for Petrobras,” says Enrique Corredor, head of BTG’s ECM syndicate. “There is a lot of pent up demand. I think the [Petrobras] deal will go well, and open up appetite for the IPO market,” the banker adds. He notes that recent jumbo follow-ons from Itau and Banco do Brasil (BdB) have whet investor appetite. Pricing is a challenge without comparables, says Matias Santa Cruz, executive director for LatAm ECM at UBS. It will get easier once issuance picks up, as happened during the 2005-2007 wave of Brazil IPOs, Cruz adds. Corredor points out that the average IPO has been 1.4x subscribed this year, versus 3.8x in 2007, and that most have priced below target. “Bankers have a responsibility to advise issuers to come with more realistic valuations. Moving forward, IPOs you will see will be more realistic in valuation expectations,” he adds. Despite a tendency for issuers to seek pricing well above what investors want to pay, he notes that recent new issues traded up, except for shipbuilder OSX. They are also beating the Bovespa, showing investors that there is money to be made in Brazil. Corredor and Santa Cruz spoke Thursday at a panel in New York organized by the Brazilian-American Chamber of Commerce.